Budget 2017: how it will affect the property market

Private Property South Africa
Private Property Reporter

What does this year’s budget speech mean for those who own property or are buying property this year? The heads of some of SA’s biggest estate agencies have their say.

In this year’s budget speech, Finance Minister, Pravin Gordhan, articulated that South Africa belongs to all who live in it, and reminded us that this is a core principle in our constitution.

With that in mind, many of the changes that were made will greatly benefit the people of South Africa and focus on economic growth rather than being set on reducing the country’s deficit.

Berry Everitt, CEO of the Chas Everitt International property group says “He has clearly taken the view that the only way for the country to move forward is to ‘spend on the right things’ – that is, on doing what it takes boosting consumer confidence, attracting investment, facilitating enterprise and fostering job creation. And we are delighted because these factors are also the keys to a healthy and growing real estate market.”

Transfer duty

Perhaps one of the largest effects on the property market comes from the increase in the threshold above which transfer duty must be paid. Gordhan stated that this will increase from R750 000 to R900 000. This is a relief for first time buyers particularly, but also to existing property owners who are downscaling.

“On a home priced at R900 000, the cash amount required for transaction costs will now decrease from almost R40 000 to approximately R25 000 – and being able to put the difference towards the deposit will definitely bring forward the purchase date”, explains Gerhard Kotze, MD of the RealNet estate agency group.

RE/MAX South Africa’s CEO, Adrian Goslett, agrees that the news should be welcomed by first time buyers. “The increase in the threshold should make it easier for many more people to get into the housing market. Most banks require deposits of between 10% and 30% percentage of the asking price of a home before they will finance the transaction. Deposit requirements, along with transfer duty fees made it impossible for many consumers to get their foot in the door – the change in threshold should change this to some degree,” says Goslett.

But it is not just first time buyers that will benefit. Berry Everitt explains that “There will also be a benefit for repeat buyers who have equity that they can use to cover deposit and transaction costs, because they will probably now need to borrow less and be able to pay off their home loans faster.”

Income tax

High earners will take on a higher tax burden which will come in the form of new taxation for the top marginal bracket, with tax now sitting at 45% for annual earnings of R1.5m-plus and a higher dividend tax, up from 15% to 20%.

“We always knew that this was a budget that was set to bring a higher tax burden, especially for the wealthy and tougher times for consumers on the whole as Treasury needed to find an extra R28bn in a shrinking economy,” says Samuel Seeff, chairman of the Seeff property group.

“It may potentially also take the liquidity out of the top end of the property market. As we have seen over the last year, the higher transfer duty and Capital Gains Tax impacted sales negatively. The negative sentiment also meant that despite a weak rand, fewer foreigners bought property despite the fact that we welcomed record numbers of foreign visitors over the summer,” says Samuel Seeff, Seeff chairman.

Dr Andrew Golding, chief executive of the Pam Golding Property group, says that it is imperative for the country to be encouraging investment amongst local and international investors, however “Setting the bar at a tax rate of 45 percent for those with a taxable income over R1.5 million per annum sends a less than encouraging signal to high net worth investors, and may dampen sentiment in luxury homes in the upper price band.”

Increase in fuel price

Gordhan announced an increase in fuel prices by 39 cents per litre which will, unfortunately, lead to an increase in the price of anything that requires transportation. This will impact those who commute to work, and essentially drive lower and middle income home buyers to purchase homes closer to their place of employment.

“The 39c a litre hike, comprising an additional 30c in the fuel levy and 9c in the Road Accident Fund levy, will mainly hurt the pockets of lower and middle income citizens, who are already contending with ever-rising electricity and water tariffs as well as property rates and food prices”, says Dr Golding.

Capital Gains Tax

There was neither a VAT increase nor an across-the-board increase in personal taxes and there was no increase in the Capital Gains Tax rate.

Berry Everitt explains, “Meanwhile, we were also pleased to note that there is to be no increase for now in Capital Gains Tax for now, which might have proved a deterrent to the buy-to-let investors we see coming back into the market now as the growth in the number of households accelerates and the demand for rental homes continue to rise.”

Other positives

Further positives for the economy and by extension the property industry are the significant additional budget allocations to boost the establishment of small businesses, road and rail transport and other industrial infrastructure, facilitate wider access to broadband internet, boost tourism and redevelop and improve urban housing environments.   

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